In a significant ruling on Thursday, the Supreme Court decided in a 7-2 majority opinion, authored by Justice Clarence Thomas, to allow the Consumer Financial Protection Bureau (CFPB) to continue its operations in its current form. The decision comes after a challenge mounted by conservatives and the payday lending industry, which could have undermined years of consumer-friendly banking regulations.
The Biden administration hailed the ruling as a victory, emphasizing that a lower court’s decision to invalidate the CFPB’s funding would have dismantled crucial regulations pertaining to mortgages, car loans, and credit cards. Established in 2010 by Congress to shield consumers from financial exploitation, the bureau faced opposition from Republicans, who have historically been skeptical of its authority, originally championed by Massachusetts Democratic Sen. Elizabeth Warren.
The legal dispute arose from a 2017 bureau rule targeting payday lending practices, particularly the prohibition of repeated attempts to withdraw payments from accounts after two consecutive failures due to insufficient funds, a practice often resulting in additional banking fees for borrowers. While most challenges from the payday lending industry were dismissed in lower courts, the 5th US Circuit Court of Appeals in New Orleans accepted one contention: that the bureau’s funding structure violated the constitutional principle of congressional control over spending. The Biden administration subsequently appealed the case to the Supreme Court in 2022.
The CFPB’s funding mechanism, which derives from the combined earnings of the Federal Reserve system annually, up to approximately $600 million, was designed to insulate the agency from political influence. Justice Thomas, in his opinion, argued that this funding arrangement satisfies constitutional requirements, stating that specifying the source and purpose of funding is sufficient control under the Appropriations Clause.
CNN Supreme Court analyst Steve Vladeck viewed the decision as a rebuke of the 5th Circuit’s controversial interpretation, indicating a broader shift in the court’s disposition. However, dissenting Justice Samuel Alito, joined by Justice Neil Gorsuch, expressed concerns over the CFPB’s financial independence, cautioning that it grants the agency excessive autonomy not intended by the Constitution.
This ruling follows a previous Supreme Court decision four years ago that found fault with the bureau’s leadership structure, citing violations of the separation of powers doctrine. Despite these legal challenges, the CFPB remains a pivotal institution in safeguarding consumer rights in the financial sector.
